Tax Australia/SA

Hi Anybody from Australia,
Just wanted to confirm the tax implications if the family stays back in Australia for a short period of time (2-3 years) as I don't want to disturb my son's education till he graduate from year 12

G'day mate,
These are the exact concerns of myself.  Working Wife and teenage daughter in Oz.  It does look as if you have to pay tax and grin and bear it.  However there may be ways around it with a good tax attorney - perhaps? 
It is demoralising about these issues when someone working with you is getting twice the salary.

I would be keen on hearing about any information/experiences on this issue.


PS - I am guessing you may have read this letter on the web? Hasnt changed in 10 years.

Arvo Nagel
Kingdom of Saudi Arabia

February 25, 2004

The Secretariat
Senate Legal and Constitutional Committee
Room S1.61, Parliament House
Canberra ACT 2600

RE: Inquiry into Australian Expatriates

Dear Sir

I write in response to the invitation by the Senate Legal and Constitutional References Committee to provide input to the inquiry into Australians living overseas.

I am an engineer who works and lives in the Middle East.  Like other Australians here I live in Saudi Arabia in excess of 300 days per year, whilst maintaining my family in Australia because of security concerns and better quality of life for them in Australia.  I work outside of Australia due to the specialist nature of my job and the decreasing number of engineering positions in my field available within Australia, at my level of expertise and age.

I repatriate all of my income to Australia, less the small amount I keep to maintain myself in the M.E., and to purchase air tickets home 3 times each year.  Being apart from my family for such long periods is not easy but we manage as best we can.  It appears such situations are almost unavoidable, these days, in my line of work.

I wish to address the issue of Australian residency for tax purposes and it’s implications in driving some skilled Australians to move their families overseas.  I believe this is a detrimental outcome for Australia and can be corrected easily by enacting small changes in legislation to bring Australia in line with other countries, such as the UK.  This issue relates to several of the terms of reference of the inquiry.
There are 2 significant factors influencing Australians to live and work overseas.  The first is the chance to increase net income and the second is to gain valuable experience to progress one’s career.
A significant downside of living and working in Australia is the level of personal income tax.  I dare say it is more onerous than in any other civilized place in the world.  We should compare ourselves to our peer group of developed countries in tax levels, and then weep.  Even countries like Malaysia can make significant progress in quality of life with much lower levels of taxation.
I recognize we live in a large country with relatively small population, however it seems unreasonable that we should be burdened by having 6 states and 2 territories, each with several houses of parliament, in additional to local government, as well as a significant federal government.  Talk about being over-governed and duplication!  Consider for example Tasmania, which has some 400,000 inhabitants, and has two houses of state government, as well as local government and federal government representation.  This is ludicrous and I dare not mention this to other expatriates for fear of being ridiculed.  Government bureaucracy should be trimmed significantly and then income tax levels could be reduced.  Additional money in the hands of Australians can then be used to generate real wealth and stimulate growth.
With such high taxes it is therefore highly attractive for skilled individuals to seek work overseas where taxes are less.  Such opportunities are considered by most professionals at one time or another, especially when they are skilled and highly employable in their 30’s and 40’s and often when their families are young.
An major issue of concern for Australian’s contemplating some level of work abroad is the situation of Australian residency for taxation purposes.  The current legislation is not in line with the other countries such as the UK and the USA.  Some Australians who chose to maintain their families in Australia are severely disadvantaged relative to those nationals.  For example an Australian maintaining his family at home can spend 365 days a year working in Saudi Arabia for a foreign or Australian company and still be considered an Australian resident for tax purposes.  The current legislation which allows some tax relief through Section 23AF and 23AG of the ITAA is fraught with interpretive issues and is complicated, outdated, and detrimental to the overall interests of Australia.  Without tax relief such persons are forced to move their families overseas to become non-residents or else contemplate drastic issues such as divorce.  Moving families away deprives Australia of foreign income, deprives Australian services and schools of the patronage of those families, and deprives the Australian government from the associated indirect taxes.  This does not happen to equivalent UK nationals, for example.
Families who move overseas for tax reasons are at risk of never returning.  If the residency situation for taxation were different then I believe more expatriate families would return their families to Australia when their children reach their teens (for education purposes and future work opportunities) and then the breadwinner could remain abroad longer to earn more foreign income and finally return permanently when convenient.  Presently this does not often happen and if the children are allowed to grow up to adulthood in other western countries then the risk of them staying away permanently increases significantly.  In such cases the families tend to stay with them.  This is a sad loss for Australia as not only does it lose the financial benefit from those people but it also loses the skills of those expatriates and the future potential of their children.
Therefore it is clear that Australia needs to urgently alter it’s archaic residency clauses and simplify the determination of residency for taxation purposes down to a defined period of absence from Australia for only that worker involved.  Significant financial and social benefit would accrue to Australia from this simple change in legislation, with no downside, and would also remove the senseless burden of managing the current legislation from AusTrade and ATO staff, clearly saving money.
In my experience happy Australian expatriates have a positive affect in the communities abroad where they work and live, and are respected by the local inhabitants and expatriates from other countries.  Australian expatriates are proud of their country and readily recommend Australian goods and services.  Therefore Australian expatriates can benefit Australia significantly in image and goodwill, and indirectly this translates to additional opportunities for Australian companies and individuals contractors & consultants) in the global marketplace.
The happier expatriates are with their treatment by Australia, the more benefit will return to Australia in the form of increased tourism, more students wanting to study in Australia, more companies and consultants gaining work through expatriate recommendations.  The more the expatriates feel their issues are neglected by Australia the less likely they are to work on Australia’s behalf in securing these benefits.
Therefore I strongly urge the Committee recommend the residency test for taxation purposes be simplified to an absence test each year from Australia for the worker involved, and not consider the fact that the worker’s family may still reside in Australia, for any reason.
Yours sincerely

A. Nagel BE(Hons), MS

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